Fall 2013
Volume XXIII, Issue 1
Administrator of the AICPA Peer Review Program
& New England Peer Review Program
Have You Been Monitoring
Your System?
By Ronda J. Kilanowski, CPA
So you did it, you created your Quality Control Document in
accordance with the Standards of Quality Control System (SQCS
– often pronounced SQUASH), the latest version being No. 8.
You considered the six elements necessary to meet SQCS No. 8.
You have also implemented your system. Wait - let’s review
those required elements again! They are: leadership
responsibilities for quality within the firm (tone at the top);
relevant ethical requirements; acceptance and continuance of
client relationships and specific engagements; human resources;
engagement performance; and monitoring.
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In This Issue
Have You Been Monitoring Your System? --------------- 1-3
New Guidance Related to Non-conforming
Engagements ---------------------------------------------------- 3
Auditing Employee Benefit Plans from a Peer
Reviewer’s Perspective ------------------------------------ 4-5
Staying Ready for Peer Review --------------------------------- 6
Clarifying Changes to Quality Control Policies
and Procedures Documentation --------------------------- 7
Firm Representation Letters ------------------------------------ 7
Summary of A&A Issues and How They Impact
Peer Review -------------------------------------------------- 8-9
On-line MFC Forms ------------------------------------------ 10-11
We Need Peer Reviewers! ------------------------------------ 12
Introducing our Newly Redesigned Website ------------- 13
Reviewed Firm Name Changes ------------------------------- 14
2013 NEPR Roster ----------------------------------------------- 14
So, have you been monitoring your system? Yes, that was one
of the elements. Monitoring is a process that includes an
ongoing consideration and evaluation of the firm's quality
control system in order to determine that the quality control
policies and procedures are properly designed and operating
effectively. Monitoring evaluates whether the firm's guidance
material and practice aids continue to be appropriate, that professional development programs continue to be effective,
and that the firm's policies and procedures are being complied with. Once the firm develops and implements its quality
control system, the system should be monitored to ensure it continues to meet the requirements of a quality control (QC)
system.
QC 10.A66 indicates that monitoring procedures may be accomplished through the performance of three types of
monitoring activities: engagement quality control review (EQCR); review of engagement documentation, reports, and
clients' financial statements for selected engagements after the report release date (sometimes referred to as “postissuance review”); and inspection. SQCS No. 8 clarifies that review of engagement work or the report by engagement team
members prior to the date of the report (pre-issuance review) does not constitute monitoring. Let’s review the three types
of monitoring activities in detail of which firms frequently use more than one of the types.
EQCR
QC 10.38 requires the firm to establish criteria against which all engagements covered by the QC standard are to be
evaluated to determine whether an EQCR should be performed. An EQCR is a process designed to provide an objective
evaluation, before the report is released, of the significant judgments the engagement team made and the conclusions it
reached in formulating the report. The EQCR process is only for those engagements, if any, for which the firm has
determined that an EQCR is required, in accordance with its policies and procedures.
The EQCR serves as an engagement performance QC procedure, and performing an EQCR helps to satisfy the ongoing
evaluation monitoring requirement of SQCS No. 8. An EQCR evaluates the significant judgments made by the engagement
team and the conclusions they reached in formulating the report. The EQCR can provide assurance as to whether reports
issued by the firm are appropriate in the circumstances.
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NEPR News
Page 2
sufficient and appropriate experience and authority, in that
they may have a person directly associated with
engagement perform the review. Post-issuance reviews are
performed only for selected engagements as identified by
firm policies. Post-issuance engagement reviews that meet
the above conditions are almost identical to engagement
inspection procedures, except that post-issuance reviews
are assumed to be performed on an ongoing basis, whereas
engagement inspections are generally performed annually
as part of the inspection activity of monitoring.
Evaluation of significant judgments made by the
engagement team as part of the EQCR may provide
validation that the firm's quality control procedures over
differences of opinion and consultation are operating
effectively. The EQCR may highlight that deficiencies exist
and alert the firm where changes are needed. The best part
of an EQCR is identifying problems when the engagement is
not yet complete so issues can be resolved before the
report is issued. This adds to the firm's assurance that the
firm is complying with professional standards and issuing
appropriate reports.
POST-ISSUANCE REVIEW
You will not find the term “post-issuance review” used in
SQCS No. 8, the QC standard describes the procedures that
typically comprise a post-issuance review and describes it to
be one type of monitoring procedure. A post-issuance
review is more involved than an EQCR, which requires
review of only selected engagement documentation relating
to significant findings.
Firms may develop policies and procedures for the use of
post-issuance reviews to be an important part of the firm's
monitoring process. To be effective as a monitoring tool the
procedures are performed by a qualified management-level
individual or a qualified individual under his or her
supervision, the individual performing or supervising the
performance of the post-issuance reviews should not be
directly associated with the performance of the
engagement. Also, the post-issuance review should be
sufficiently comprehensive to enable the firm to assess
compliance with professional standards and applicable legal
and regulatory requirements as well as the firm's control
policies and procedures related to the engagement.
Findings during the post-issuance review may indicate the
need to improve compliance with or change the firm's
quality control policies and procedures. If that is the case
corrective action can be taken. There is an exception for
small firms with a limited number of individuals having
INSPECTION
SQCS No. 8 defines an inspection as “a retrospective
evaluation of the adequacy of the firm's quality control
policies and procedures, its personnel's understanding of
those policies and procedures and the extent of the firm's
compliance with them. Inspection includes a review of
completed engagements.” QC 10.A67 explains that firms
determine the need for and extent of inspection procedures
in part based on the existence and effectiveness of its other
monitoring procedures. The nature of inspection
procedures varies based on the firm's quality control
policies and procedures and the effectiveness and results of
its other monitoring procedures. Inspection procedures can
include both engagement performance-related monitoring
procedures and administrative and other monitoring
procedures.
The inspection process involves selecting individual
engagements, some of which may be chosen without prior
notification. By adding an element of surprise the
monitoring process will be more likely to uncover
engagements with deficiencies, if any, since the
engagement partner will not have an opportunity to review
the engagement documentation prior to the inspection. In
determining the scope of the inspections, the firm may take
into account the scope or conclusions of a peer review or
regulatory inspections. Engagement inspections are often
performed annually or periodically at designated times
during the year, especially in small firms. Since SQCS No. 8
requires at least annual communication to firm leadership
of monitoring results, firms should perform both
engagement and administrative and other monitoring
procedures at least annually. The timing of selection of
individual engagements depends on many factors, including
firm size, number and location of offices, results of past
monitoring, degree of authority the firm has over
inspections, nature and complexity of the firm's practice,
and client and engagement risks. But that is an article for
another time.
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NEPR News
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The Peer Review process is different than monitoring procedures in that
the peer review evaluates a firm's QC system as of a point in time, while
monitoring is an ongoing process. Therefore, the performance of a peer
review does not substitute for monitoring procedures. However, QC
10.A71 indicates that because the objective of a peer review is similar to
that of inspection procedures, a firm's quality control policies and
procedures may provide that a peer review conducted under AICPA
standards may substitute for the inspection of engagement
documentation, reports, and client financial statements for some or all
engagements for the period covered by the peer review.
Active monitoring will ensure your firm meets SQCS and ....... you fill it in,
you know the benefits.
Ronda J. Kilanowski, CPA is a partner in the
firm of Malone, Dirubbo & Company, is a peer
reviewer and serves as a NEPR committee
member.
New Guidance Related to Non-Conforming Engagements
The Peer Review Board recently approved guidance related to responding to engagements that are deemed as not
performed or reported on in conformity with applicable professional standards in all material respects (“nonconforming engagements”). If non-conforming engagements are identified during the peer review, the reviewed firm
has the responsibility to make appropriate considerations about how to remediate the engagement, such as whether
to perform omitted procedures, reissue the accountant or auditors reports, or have previously issued financial
statements revised in accordance with professional standards. The approved guidance emphasizes that the peer
reviewer and the report acceptance body (RAB) should also evaluate whether the firm’s response is appropriate,
whether lack of appropriate response is indicative of other weaknesses in the firm’s system of quality control, or
whether monitoring procedures are necessary to verify if the engagement was remediated.
PRP Section 3100 Supplemental Guidance addresses a reviewed firm’s responsibility to consider applicable
professional standards, and to provide a response, deemed sufficient (genuine, comprehensive, and feasible) by the
reviewer and the RAB, for each non-conforming engagement identified during the peer review:
• The firm should document and provide a written response to the reviewer about the firm’s considerations of
whether or not to perform omitted procedures, reissue accounting or auditing reports, have revisions made to
previously issued financial statements, or remediate a subsequent engagement.
• The firm should thoroughly consider the continued reliance by third party users on reports issued and work
performed. Particularly the firm should consider the expectations of regulatory bodies that the firm will perform
procedures and/or correct reports in a timely manner.
• The firm should include the summary of its considerations and conclusions in its response generally documented
on an MFC form.
• The reviewer should thoroughly evaluate and document their assessment of the firm’s considerations on
documents submitted to the RAB (MFC form additional team/review captain comments, and SRM or
Team/Review Captain’s Checklist).
• The reviewer or AE should not require or instruct the firm to perform omitted procedures, reissue accounting or
auditing reports, to have previously issued financial statements revised and reissued because those are decisions
for the firm and its client to make. However, the administering entity can require the reviewed firms to make
appropriate considerations regarding non-conforming engagements as a condition of acceptance of the peer
review. The firm’s actions may affect other monitoring actions the administering entity’s peer review committee
may impose, including actions to verify that the firm adheres to the intentions indicated in the firm’s response.
This may include requiring a firm to agree to have someone acceptable to the RAB review the engagement
remediation.
• In a System Review, a lack of a firm’s appropriate considerations and response should cause the reviewer to
evaluate whether this is indicative of a potential failure to comply with the leadership/tone at the top element in
the firm’s system of quality control.
NEPR News
Page 4
By Donna Neely, CPA
In the last 10 years, a significant growth area for practices
has been in Employee Retirement Income Security Act
(ERISA) auditing. It has not been without peril as any firm
selected for audit by the Department of Labor (DOL) has
learned. While performing peer reviews and seeing the
many ways firms approach and interpret ERISA auditing,
some common issues and problems come to light.
Below are reminders for firms that are both experienced
and new to the ERISA audit area:
REMINDER 1: UNDERSTAND THE PLAN
Not all plans are the same. Even prototype plans have
customizing features. All too often the auditor doesn't
spend enough time up front understanding the plan
documents. The client may not have the latest version, or
is unable to supply more than a plan summary. Auditors
should start off right by obtaining the correct current
documents, reading them, and placing them in the perm
file. Some notable differences include: the definition of
plan compensation; what to do with bonuses; or how
fringe benefits are treated. The primary key to plan
auditing is to understand both who is covered and the
definition of compensation. Then, have your testing
aligned to that definition for the correct target
participants. It is not unusual to find confusion among plan
sponsors regarding the terms of the plan, especially one
that is complicated or has had many amendments.
REMINDER 2: YOU ARE AUDITING THE PLAN, NOT THE
SPONSOR
Although you may audit the sponsor, auditors often
forget that the plan is a unique entity with its own
policies, procedures, and requirements for compliance
separate from the plan's sponsor. Your audit objectives are
to gain an understanding and document the key controls
and procedures that relate to the plan. Some unique items
to address include: How is the payroll system tailoring itself
to the plan requirements? What controls surround
benefits? How about loans or plan monitoring? More
often than not, there is inadequate demonstration and
documentation of the auditor's knowledge of the plan's
unique systems and procedures.
REMINDER 3: RISK ASSESSMENT MUST HAVE SOME
FOUNDATION
In eight out of ten plans the auditor assesses plan risk as low.
NOOOOOOOOOOOO! Risk assessment is judgmental, but that
doesn't mean making an upfront judgment without a
foundation is OK. Risk assessment can be based upon detailed
control system support testing or careful systems analysis
supported by more limited testing of key control features.
Many times auditors feel just a simple one page narrative or
simple walkthrough is sufficient. It's not! To assess risk as low
you need adequate support. Finally, limited scope doesn't take
away the responsibility for assessing risk at the plan level.
REMINDER 4: UNDERSTAND THE INVESTMENTS
Let's debunk a myth: Not all investments in an Employee
Benefit Plan are mutual funds. There are types of
investments (common collective trusts, pooled separate
accounts, funds in insurance company general accounts, etc.)
that might appear similar to a mutual fund but have
different characteristics and different auditing and disclosure
requirements. It is common to find that the plan sponsor
personnel who are assisting the auditor do not have an
understanding of the type of investments in the plan and
unfortunately the custodian or third-party administrator’s
(TPA) contact person may not know either. You must get a
handle on the type of investments by either web search or
consultation whenever you approach an unfamiliar
investment. Unique disclosure accompanies unique
investments. Most of us seem to be getting a handle on
distinguishing Level One, Two or Three investments but we
often miss the bigger picture as to what the investment is.
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NEPR News
Page 5
REMINDER 5: LIMITED SCOPE AUDITS DON'T LET YOU OFF
THE HOOK
Remember, in a limited scope audit, the certification merely
covers the investments and investment transactions. The
certification may or may not extend to Notes Receivable
from participants and it does not cover such audit areas as
participant data and participant accounts, timing of
remittance of contributions, or benefit payments.
REMINDER 6: SSAE 16/SAS 70 REPORTS INCLUDE USER
CONTROL ASSUMPTIONS
The SSAE 16/SAS 70 report is predicated upon the
effectiveness of specified user controls. The auditor must
review and perhaps test the effectiveness of such controls
at the plan level and document that they are in place and
working effectively. The AICPA Employee Benefit Plan Audit
Quality Center (EBPAQC) has a toolkit on its website to assist
in this process. You can't just obtain the report, insert it in
the work papers, and say that you are reducing the
information that is in the report to the assertions that are
significant to the plan's financial statements.
REMINDER 7: TESTING AT THE PARTICIPANT LEVEL IS HARD
With the almost universality of participant directed
accounts, our work is made considerably harder. Most of us
know to adequately test and document that participant
contributions to the plan are authorized; in the correct
amount; and, allocated to the investments selected by the
individual. Sometimes the firm mistakenly thinks this is
covered by the limited scope certification and is not tested.
Testing has been made more difficult in this age of instant
participant directed internet changes. Confirmations
frequently don't work due to a lack of response. One option
is to interview participants while showing them the activity
in their account. An additional difficulty involves the
requirement to test the allocation of plan income to
participants' individual accounts including the realized and
unrealized gains or losses, and plan expenses. Limited scope
does not get you out of this requirement. One additional
key is to review income allocation to individual accounts to
see if any aberration pops out. CAATS assistance (data
mining) can help here.
REMINDER 8: MAKE SURE YOU HAVE ALL THE APPROPRIATE
PARTICIPANTS
The selection of testing that we see is sometimes limited.
New hires, borrowings, and rollovers are sometimes not
included in testing or walkthroughs. Often we see participant
testing that is one-sided. The sample is selected from the
participant account report or the payroll records but not
both. We see very little use of data mining software which
could be used to minimize audit risk.
REMINDER 9: ERISA AUDITING IS HIGH RISK
Some auditors start their employee benefit plan auditing
career when one of their clients has a plan that suddenly
needs an audit and the client asks them to do the audit.
ERISA auditing is a very specialized area. It is very difficult to
do just one or a small number of these audits properly. The
risks are very high for both the client and the auditor if the
audit is not up to standards. The Department of Labor has a
program that selects certain plan filings and examines the
auditors' work papers. If the DOL examiner feels that the
audit did not meet standards, the deficient audit can be
referred to the AICPA and state society. The auditor may face
sanctions, which if severe enough, could result in loss of their
CPA license.
The standards of supporting documentation are rigidly
adhered to by the DOL: if it's not in the work papers, it's not
there. The most common error noted in the peer review is
lack of documentation. The reason is that the auditor knows
the client so well that the brain didn't translate the
information to paper. Don't get caught off-guard. Document,
document, document!
Donna Neely, CPA has extensive experience in auditing
employee benefit plans and conducting peer reviews for ERISA
audits. She is a partner at QRGA, LLP, located in Norwood and
is the co-chairperson for the MSCPA's ERISA Accounting &
Auditing Committee. Donna received her MBA and BSBA from
Boston University. She can be contacted at
dneely@qrgacpa.com.
Reprinted with permission from the Massachusetts
Society of CPAs
NEPR Annual Oversight Report
We publish an Annual Report on Oversight (report) and post the report to our website each November for the prior year.
The purpose of this report is to provide a general overview; statistics and information; and the results of the various
oversight procedures performed by NEPR. The report contains information on:
• Our oversight policies and procedures
• The results of peer reviews
• The number and types of corrective actions
• The number, nature and extent of engagements not performed in accordance with professional standards in all
material respects
View the 2011 report at https://www.nepr.org/sites/default/files/NEPR-2011-Annual-Oversight%20Report.pdf
Page 6
NEPR News
Staying Ready for Peer Review
By Abby T. Dawson, CPA
As the time for the peer review
approaches, firms naturally start
worrying about whether they are
ready to pass the peer review “test”.
As a professional, what is more
important is complying with
professional standards on an ongoing
basis. If you are keeping up and
following standards, “the test” should
be nothing to worry about.
The AICPA and NEPR have many resources to help firms
prepare for peer review. While these resources are valuable
and will be expounded on later in this article, they primarily
serve to help you prepare for “the test” (your peer review).
A course developed by the AICPA, “Upcoming peer Review: Is
your Firm Ready?” available live or online, is also sponsored
by some of the state societies. It is not only designed to help
you prepare for the test, but also to provide guidance on
creating, maintaining, and documenting a quality control
system. Common engagement deficiencies are also
discussed. However, since the course is designed to cover
all key areas, firms that have engagement reviews may find
some of the information unrelated to their practice. Smaller
firms should at least review the AICPA and NEPR website for
publications and articles more specific to their practices.
The big question for many small firms is how to keep up with
standards specific to its practice and still find time to run the
practice. Here are a few suggestions:
Subscribe to, maintain, and follow 3rd party practice aids.
Peer reviewers find many firm’s used outdated checklists and
samples, even though the current version is available. Firm’s
need to find a method that works for them of ensuring the
most recent guidance is followed. Deficiencies also often
arise by not understanding the purpose of a practice aid, or
using one not tailored to the industry or size of the
engagement. There is a wealth of guidance included with
these aids and the explanatory text is usually referenced in
the aids. Updates often have a section emphasizing what’s
new. Some series come with CPE, for a modest price which
covers updates to the standards as well as how to utilize the
service. You should investigate whether there may be a
practice aid specific to the industry you are serving.
Obtaining continuing professional
education specific to your practice
needs is imperative. Options today
are varied. In addition to live
classes, self-study courses are
available from a variety of vendors
in a variety of mediums – books,
online, CDs, DVDs, webinars and in 1
hour to 20 increments. While a
general accounting and auditing
update is always recommended, the focus of them can be
on areas not relevant to your practice. If you don’t perform
audits a course on SSARS updates may be more useful.
Courses tailored to the industries you serve may be
available.
Look into reference material to supplement your third party
practice aids. A few publishers issue practical GAAP and
GAAS guidance updated annually. The AICPA issues industry
audit guides. All official pronouncements are available
online. The AICPA continues to maintain their technical
hotline. On the AICPA website (www.aicpa.org), go to the
research tab, then drop down to AICPA Technical Hotline for
more information. The phone number is 877-242-7212.
The internet has opened up a vast source of information. If
your inbox isn’t already flooded with newsletters you might
find valuable, a search can probably find you links to some
that might be helpful. These resources can help you stay
informed on changes to standards as well as provide tips for
complying with current ones. You may want to confer with
colleagues as to sites they find useful. Your peer reviewer
may also be able to provide practical guidance on such
sources.
In summary, the best way to be ready for your peer review
is to find ways that work for you to stay informed. While,
none of the above tactics guarantees you will obtain and
apply the required knowledge, perhaps they will help you
focus your efforts. Maintaining a professional practice
requires staying current, the peer review is just “the test”.
Abby T. Dawson, CPA is a partner in the firm of F.G. Briggs
Jr., CPA, PA, is a peer reviewer and has been a NEPR
technical reviewer since 1993.
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3
NEPR News
Clarifying Changes to Quality Control
Policies and Procedures Documentation
The Peer Review Board (Board) has recently approved clarifying changes to guidance for requesting a firm’s quality control
document or responses to Quality Control Policies and Procedures Documentation Questionnaires.
The clarifications affect PRP Section 4300 and 4400 Quality Control Policies and Procedures Documentation Questionnaires for
a “Sole Practitioner with No Personnel”, and for “Firms With Two or More Personnel”, respectively, and PRP Section 4100
Instructions to Firms Having a System Review. The clarifications can be found as the September 27, 2013 Board Open Session
Agenda Item 1.2B-2 and will be included in the 2014 Peer Review Program Manual. The guidance is effective upon issuance of
the manual. A summary of the clarifications are as follows:
• Firms have previously been expected to provide a copy of their quality control document to their team captain. The
changes specify that the document supplied must reflect the policies and procedures effective for the entire peer
review year.
• Team captains have previously been permitted to request that a firm complete the applicable quality control
questionnaire even if the firm has a quality control document. The changes clarify that the firm should still provide a
copy of their quality control document to their team captain. The changes also provide some examples as to why
completion of the questionnaire would still be requested by the team captain when quality control documentation
has been provided.
• Firms without quality control documents have been able to complete the applicable Quality Control Policies and
Procedures Questionnaire as the primary documentation of their system of quality control (to assist them in
complying with the documentation requirements of SQSC No. 8). If the questionnaire completed for the peer review
was not in effect for the peer review year, the changes indicate the firm should also attach previously completed
questionnaire(s) that were effective for the peer review year (which could be the questionnaire completed for the
firm’s last peer review).
• The changes ensure that team captains focus first on whether a firm has a quality control document effective for the
peer review year, and whether the applicable quality control questionnaire needs to be completed to supplement that
quality control document. The changes next ensure that if the firm does not have a quality control document, that it
provide the applicable completed quality control questionnaire effective for the peer review year.
• Team captains should refer to “Monitoring and Documentation of a Firm’s System of Quality Control” within 3100
Supplemental Guidance to determine the impact on a peer review when there is marginal or a lack of documentation
of a firm’s system of quality control as required by the SQCS.
Firm Representation Letters
We have found numerous instances of outdated language and incorrect dating in Firm
Representation Letters. Please be sure to review Section 1000, Appendix B of the
Standards for Performing and Reporting on Peer Reviews prior to submitting the letter
to your reviewer. Appendix B can be found on the AICPA website or on our website at
http://www.nepr.org/resources/scheduling
On System Reviews, the written representations should be addressed to the team captain. Since the team
captain is concerned with events occurring during the peer review period and through the date of his or her
peer review report that may require an adjustment to the report or other peer review documents, the
representations should be dated the same date as the peer review report.
On Engagement Reviews, the representations should be addressed to the review captain (for example, “To
John Smith, CPA”) and dated the same date that the firm submits the list of engagements to the reviewer.
Page 8
NEPR News
Summary of A & A Issues
Facing CPAs and How They
Impact Peer Review
By Leo R. Moretti, CPA & Paul E. Moran, CPA
There are many issues that have surfaced recently that
require special consideration. Some of those issues that we
face that we would like to bring to your attention are as
follows:
• Variable interest entities (VIEs)
• Subsequent events
• Related party transactions
• Fair value measurements
• Supplementary information
Let’s review these items in order.
Variable interest entities (VIEs)
You can find the criteria for VIE's listed in FASB ASC 810-1025 under the VIE section starting at paragraph 20. If the
entity is the primary beneficiary of a VIE that meets the
requirements for consolidation, but is not consolidated and
the VIE is material it would give rise to an adverse opinion
and require an emphasis of matter paragraph describing the
GAAP departure along with the effects of this departure on
the financial statements. As you can see if this was missed
the financial statements would not be in accordance with
GAAP and would result in a MFC and depending on the
pervasiveness of this finding could result in a peer review
report of pass with deficiencies or fail.
Subsequent events
You can find information on subsequent events at FASB ASC
855. There are two types; type 1 would be recorded in the
financial statements, type 2 would be disclosed. Make sure
you review this area to insure proper reporting of
subsequent events to insure that the financials are
presented in accordance with GAAP. Failure to do so may
result in a peer review report of pass with deficiencies or fail.
Related party transactions
The method of recording transactions between related
parties is not specifically addressed by the FASB.
It is a common acceptable practice to record them at
historical cost since the transaction is not considered an
arm's length transaction. Recording gains on related party
transactions would not be appropriate. Often times there
are different treatments for tax purposes giving rise to
deferred taxes. Missing deferred taxes, recording related
party transaction with gains, or recording at fair market
value as opposed to historical cost most likely would be
significant enough to result in a peer review report of pass
with deficiencies or fail.
Fair value measurements
With regards to fair value measurements, nonpublic entities
are exempted from certain disclosure requirements in
paragraphs 10-19 of FASB ASC 825-10-50. The significant
change from ASU 2013-13 is that a nonpublic entity is not
required to provide the disclosure in paragraph 825-10-5010(d) that requires the disclosure of the level of the fair
value hierarchy within which fair value measurements are
categorized for items disclosed at fair value but not
measured at fair value in the statement of financial position.
This is effective immediately; however this does not change
any other fair value disclosure requirements of FASB ASC
820 or 825. Improper interpretation of this area could result
in missed disclosure requirements and the issuance of an
MFC, which could move this deficiency to an FFC or the
report as a pass with deficiency.
Supplementary information
Often third party users of the financial statements request
certain financial information be presented in the form of
supplementary information that may not be in accordance
with GAAP. This information is presented for purposes of
additional analysis and is not a required part of the financial
statements. You will need to find the appropriate opinion
wording. This is not covered in AU-C section 700 as that
section only covers your "standard" report wording. AU-C
section 725 provides samples language when you are asked
to report on supplementary information. If a regulatory basis
of accounting requires presentation of budgetary
information, follow guidance in AU-C section 800. Keep in
mind you are allowed to compile, examine, or apply agreed
upon procedures to prospective financial information as a
separate engagement. Failure to follow the professional
requirements would in most cases result in a peer review
report of pass with deficiencies or fail.
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NEPR News
Page 9
New Challenges / New Developments
The AICPA has proposed Financial Reporting framework for small to medium sized enterprises. (FRFSME) and has
published "Financial Reporting Framework for Small and Medium-sized Entities. The AICPA also has available
illustrative financial statements prepared using the Framework along with frequently asked questions, comparisons to
other bases of accounting and decision tool for adopting the Framework. FRF-SME is designed to emphasize familiar
accounting concepts such as historical cost and the matching of revenues with costs. Current accounting standards
have moved away from historical costs and more to fair value. The goal of FRF-SME is to move to a simpler historical
cost framework.
This simpler financial reporting option is designed to meet the users' needs without being unnecessarily costly for
small businesses. Lenders and other uses of SME financial statements largely find fair value measurements in the
financial statements of little use. The FRF-SME does not require an assessment of goodwill impairment but rather
requires goodwill to be amortized over the same period as that used for federal income tax purposes or if not
amortized for federal purposes 10 years. The proposed Framework for SME's will not require consolidation of VIEs.
Under the Framework accounting for leases will follow a traditional accounting approach that is closely aligned with
how leases are treated for income tax purposes. The Framework does not require the reporting of comprehensive
income and will provide for simplified pension disclosures with more principles-based accounting instead of detailed
rules. The Framework should prove to be a cost effective alternative to GAAP by keeping compliance issues and
requirements to a minimum while still satisfying the users' of the financial statements.
Private Company Council – GAAP Issues Being Addressed (Little GAAP)
The top issues to watch out for are:
• Various intangible assets (other than Goodwill)
• VIEs
• Interest rate swaps
• Uncertain tax position
These first few issues were “low hanging fruit” (which were the easiest to address) the “higher hanging fruit” (the
more difficult issues) will take more time to address. Please stay tuned!!!!!
Other tips
Make sure you use up to date practice aids and that the firm is in full compliance with their use. In addition CPE in your
practice areas and new development areas is a must. Pre-issuance reviews and robust internal inspections should go a
long way to maintaining the quality needed to successfully pass peer review.
The above information presented has been summarized from the AICPA website and/or AICPA conferences.
Leo R. Moretti, CPA, CGMA
Leo R. Moretti is a partner in the
firm of YKSM, Ltd, is a peer
reviewer and has been a committee
member of NEPR since 2000, as well
as a former chairman.
Paul E. Moran, CPA. ADR, PFS, CGMA
Paul E. Moran is a partner in the firm of
YKSM, Ltd, is a peer reviewer and has been a
technical reviewer for NEPR since 1996. Paul
is also one of NEPR’s founding fathers as well
as a former committee member.
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Online Matter for Further Consideration (MFC) Form
The AICPA has developed online Matter for Further Consideration (MFC) and Disposition of Matter for Further
Consideration (DMFC) forms and has been testing their functionality since the fall of 2012. Peer reviewers are required to
use the online MFC and DMFC forms for reviews of all AICPA member firms. The online forms will not be used for reviews
of non-AICPA member firms until late 2014.
Using existing username and passwords currently used for logging in to www.aicpa.org and for example, purchasing CPE
from CPA2BIZ, both reviewed firms and reviewers will have access the Peer Review Information System Manager (PRISM)
after logging into www.aicpa.org. PRISM has been used by AICPA peer review staff and Administering Entities to perform
the administrative tasks associated with all peer reviews for member and non-member firms since 2009.
Scheduling forms are completed prior to scheduling your review. The form requests the names of your firm’s managing
partner and peer review contact (or identifies you as a sole practitioner). Each of these individuals will be authorized to act
as your firm representative for purposes of completing the online MFC form(s). Prior to signing the MFC form(s), the
reviewed firm representative should discuss the MFC with the appropriate individuals within the firm, including those
charged with governance.
To prevent potential delays during your firm’s peer review, your managing partner and peer review contact should register
on www.aicpa.org and obtain a username and password. We recommend you have a username and password prior to
your review. It will be helpful for you to familiarize yourself with the PRISM system and tailor your homepage to include
information you access often. The website can be accessed from any computer or tablet with an internet connection with
your username and password.
We have developed this quick step-by-step article to assist you with accessing PRISM and completing MFC forms. For
further details, please visit the AICPA website link at:
http://www.aicpa.org/InterestAreas/PeerReview/Community/PeerReviewers/Pages/matters-for-further-considerationproject.aspx
Accessing PRISM
If you already have an AICPA.org login and meet the following qualifications, log into AICPA.org and skip to Signing into
PRISM. To access PRISM you must meet the following requirements:
• Be an active member
• Be employed in a public accounting firm
• Have a login for AICPA.org
If you are not an active AICPA member or are not employed by a public accounting firm and attempt to access PRISM, you
will receive an error message. Please call the AICPA’s Member Service Center at 1.888.777.7077 or email
service@aicpa.org for further assistance with these matters.
Creating a Login and Registering on AICPA.org
If you are an AICPA member in public accounting, follow the steps below to register on AICPA.org.
1. Go to AICPA.org.
2. Click ‘Sign In’.
3. Under the Password field, click ‘Register’.
4. Enter your last name and member number or email and click ‘Search’.
5. Complete the sign-in information and click ‘Submit’.
Note: Please use your primary email address as your username.
6. Wait for the Congratulations message and then sign in.
Note: It can take up to 24 hours after your account is created to be able to sign into PRISM.
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Signing into PRISM
To sign into PRISM, follow the steps below.
1. Go to AICPA.org and at the top of the page, click ‘Sign In’.
2. Enter your AICPA.org username and password and click ‘Sign In’.
3. Hover over the Interest Areas tab and click ‘Peer Review’.
4. Click ‘For CPA Firms’.
5. Click the PRISM link found under ‘For Enrolled Firms’.
After your peer reviewer creates MFC form(s), they will route them to you via PRISM. Your firm representatives will
receive an email from NEPR’s email address stating that MFC form(s) are waiting for review. It will also be shown on your
firm representatives‟ dashboard in PRISM. If there was an email transmission failure, your reviewer will be notified.
After receiving the email you will log in to PRISM, where there will be a link on your homepage for MFC Forms (link to
PRISM). Here are the steps you will take:
1. Click on MFC Forms.
2. Click on the No. of MFCs. This will take you to the MFC Dashboard.
3. Open an MFC by clicking on the MFC No. You can read the form to see which engagements it applies to, the
professional standards references, etc.
4. You must respond to the “To Be Completed by the Reviewed Firm Section.” Indicate whether you agree and if you
discussed it with the applicable individuals in your firm. You have to provide comments however; the extent of
the comments is at the discretion of the firm.
5. Click Sign Off which will return you to the previous screen.
6. Repeat with all of the MFCs. When you are finished and back at the main MFC Dashboard, you can print all of the
MFCs to share with partners, etc.
7. Check the box next to all of the MFCs and click Submit Selected MFCs to Peer Reviewer.
Alternatively, if you don’t agree and would like me to make a revision, instead of steps 4-7 above, please click “Request
Revision for Selected MFCs” on the MFC Dashboard and fill in the appropriate information.
Online MFC Form Support
If you have reviewed the detailed instructions, Q&A and troubleshooting and still have questions, contact the below AICPA
resources.
• For login and access issues: call 888.777.7077 or email service@aicpa.org
• For questions about the online MFC form: call 919.402.4502 or email prsupport@aicpa.org
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Why would I want to be a peer reviewer?
As a peer reviewer, you will not only contribute to the improvement of quality and
standards for your profession, but also receive many additional benefits including:
• The development of an additional profit center for your firm.
• The potential for referrals for additional services.
• Recognition as an expert in your field among your peers.
• Identification of best industry practices which can be applied at your firm.
• An opportunity to sharpen your own skills and reinforce your accounting and auditing
knowledge.
Why is now a good time to become a peer reviewer?
As the early “pioneers” of peer reviewers begin to retire, the pool of qualified peer reviewers has been steadily shrinking,
creating a demand in this important professional program. In addition, the AICPA has also recently made it easier to
receive the training you need to become a peer reviewer, with more options to choose from.
Could you expand on some the benefits of being a peer reviewer?
Being a peer reviewer opens doors to networking opportunities. Peer review services will enhance your knowledge of
professional standards. In addition, your work as a peer reviewer will enable you to provide better service to your own
clients by offering a venue to observe and understand the best techniques of other accounting firms.
When you become a peer reviewer, you will gain valuable knowledge, expertise and exposure and earn the respect of
your peers. Performing peer reviews also provides members with a way to “give back to the profession.”
What are the requirements for becoming a peer reviewer?
To become a team captain on system reviews or a peer reviewer on engagement reviews, an AICPA member must:
1. Meet all of the reviewer requirements (http://www.aicpa.org/InterestAreas/PeerReview/Community/Pages/PeerReviewer.aspx)
2. Complete the introductory reviewer training as discussed below.
3. Complete the online reviewer resume form through PRISM.
What are the introductory training options?
In an effort to increase the accessibility of peer reviewer training the AICPA has introduced the restructuring of the
educational options:
• “How To” Course in self-study format – This course will qualify for approximately 8 credit hours of CPE and can be
taken in lieu of attending Day 1 of the live seminar “How To” Course.
• Competency Test – This test does not provide CPE but it can be taken in lieu of attending Day 1 of the live seminar
“How To” Course.
New reviewers can meet the initial peer reviewer education requirements by completing one “theory” option and one
“practical application” option. This is highlighted in the matrix that follows:
Theory
Practical Application
"How To" live seminar - Day 1
"How To" live seminar - Day 2
"How To" self-study
Competency test
Mentoring by a Peer Review Mentor
For example, a potential reviewer can meet the initial training requirements by taking the two day “How To” Course in live
seminar format. Alternatively, they could take the “How To” self-study course and then be mentored by an approved Peer
Review Mentor.
Still interested? Give us a call to discuss further!
NEPRNews
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NEPR
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On-site Oversight of NEPR
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NEPR is visited by a member of the AICPA Peer Review Board (PRB) Oversight Task Force (OTF) every other year. During
these visits, the member of the OTF will at a minimum:
• Interview the administrative staff and Committee Chair
• Evaluate the various policies and procedures for administering the AICPA PRP Meet with NEPR’s peer review
committee during its consideration of peer review documents.
• Evaluate a sample of peer review documents and applicable working papers on a post acceptance basis.
Our latest oversight visit was performed in November, 2012 and resulted in the equivalent of a “pass” report, with the
conclusion that NEPR has complied with the administrative procedures and standards in all material respects”.
View the full report, as well as all other administering entities’ reports at
http://www.aicpa.org/InterestAreas/PeerReview/Resources/Transparency/Oversight/Pages/OversightVisitResults.aspx
Introducing the Newly Redesigned NEPR Website!
We have redesigned our website to be even easier to navigate to the information that you need quickly, while
providing more resources than ever to help our firms prepare for a peer review.
Visit us at www.nepr.org
Lots of ways to
contact us
including an
‘Email Us’ form at
the bottom of
every page
A dedicated
section for peer
review related
documents & links
Quick links to
the most popular
web pages
A section on the
home page to
keep you updated
on the latest peer
review news
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Reviewed Firm Name Changes
A reviewed firm may change its name during the peer review year or after the peer review year-end but prior to the peer
review report being presented for acceptance to the peer review committee. A firm should complete the Notification of
Change in Firm Structure Form (www.nepr.org/sites/default/files/PRP_change_form.pdf) whenever there is merger,
dissolution, or just a name change and should submit this information to NEPR. The AICPA will make a determination whether
for peer review purposes it will be treated as solely a name change. If the firm’s name changed due to a merger, or
acquisition, dissolution, or sale, this guidance may not be applicable.
The peer reviewer is issuing a report on a period covering one year and should include the name that appeared on the
letterhead of the reports issued by the firm during that year.
If subsequent to the peer review year-end the firm changed its name, the new name may appear as well. For example, ABC
firm had a peer review for the year ended 9/30/13 and changed its name to ABCDE firm effective 11/1/13. The peer review
took place on 12/1/13, and the peer review report was issued 12/15/13. In this example the report could be addressed to (and
all references in the report) could refer to “ABCDE firm (formerly known as ABC firm”).
If the firm underwent a name change in the middle of the peer review year, the report should be addressed to the firm’s most
current name and could also indicate in the body of the report, “also doing business as.” So in the previous example, assume
ABC firm changed its name to ABCDE firm on 3/31/13. The peer review report would appropriately be addressed to ABCDE
firm but the body of the report could refer to ABCDE firm “also doing business as ABC firm” during the peer review year since
reports were issued on both letterheads for the reports issued by the firm. Find the full guidance in Section 3100 of the Peer
Review Program Manual.
2013 NEPR Roster
New England
Peer Review
1750 Elm St, Ste 403A
Manchester, NH 03104
Phone:
603.623.3513
Fax:
603.645.9877
E-Mail:
pamela@nepr.org
NEPR Meeting
Schedule
November 15, 2013
January 17, 2014
May 16, 2014
September 5, 2014
(Dates are subject to change
– check the NEPR website for
any revised dates)
Maine
Rhode Island
Technical Reviewers
Leo R. Moretti (*2014)
YKSM, Ltd.
56 Wells Street
Westerly, RI 02891
(401) 596-9500
(401) 348-9908 – Fax
lmoretti@yksmcpa.com
Abby T. Dawson
F. G. Briggs, Jr., CPA, PA
98 Salmon Street
Manchester, NH03101
(603) 668-1340
(603) 668-6751 – Fax
abby@fgbriggsjrcpa.com
Wayne C. Smith (*2015)
Smith & Associates, CPAs
500 US Route One, Suite 203
Yarmouth, ME 04096
(207) 846-8881
(207) 846-8882 – Fax
wayne@smithassociatescpa.com
Vermont
Barbara McGuire
Chester M. Kearney
PO Box 744
Houlton, Maine 04730
(207) 532-4271
(207) 532-4589 - FAX
barbara@cmkcpa.com
New Hampshire
Treasurer
Paul E. Moran
YKSM, Ltd.
27 Dryden Lane
Providence, RI 02904
(401) 273-1800
(401) 331-0946 – Fax
pmoran@yksmcpa.com
Herman Belanger (*2014)
Chester M. Kearney, PA
PO Box 1550
Presque Isle, Me 04769
(207) 764-3171
(207) 764-6362 – Fax
herman@cmkcpa.com
Ronda J. Kilanowski (*2014)
Malone, Dirubbo & Co., PC
9 West Street
Lincoln, NH 03251
(603) 934-2942
(603) 934-5384 - Fax
rjk@mdccpas.com
Clerk
Robert L. Vachon (*2016)
Vachon, Clukay & Company PC
608 Chestnut Street, FL 2
Manchester, NH 03104
(603) 622-7070
(603) 622-1452 – Fax
rvachon@vachonclukay.com
David C. Grippin (*2015)
Grippin Donlan Pinkham
3 Baldwin Avenue
S. Burlington, VT 05403-7317
(802) 846-2000
(802) 846-2001 – Fax
dgrippin@gdp-cpa.com
Michael L. Segale, CPA (*2016)
Fothergill, Segale & Valley, PC
143 Barre Street
Montpelier, VT 05602
(802) 223-6261
(802) 223-1550 – Fax
mike@fsv-cpa.com
Executive Director
Pamela M. Lemire
pamela@nepr.org
Recording Secretary
Chairman/President
* Denotes year in which term expires
Charles A. Prigge
Oster & Wheeler PC
PO Box 623
Keene, NH 03431
(603) 352-4500
(603) 352-8558 - FAX
cprigge@ostercpa.us.com